Super to grow drastically – but still not enough for many

The total asset pool in the Australian superannuation system is set to grow by two-and-a-half times in the next decade from $1.6 trillion to $4 trillion, and by nearly five times to $7.6 trillion by 2033, according to data gathered by Deloitte.

Despite this sizable growth, superannuation still may not be sufficient for those in retirement due to lower initial balances, investment losses and limited windows of opportunity to invest sufficiently in superannuation.

A report released by Deloitte has stated that growth was dependent on the superannuation guarantee (SG) moving from 9.25 per cent to 12 per cent, as well as gradual population growth and positive investment returns.

Deloitte Superannuation leader Russell Mason said investment returns were critical to this figure, but the Federal Government's proposal to defer SG increases for two years would only reduce assets by 1 per cent over the next 20 years.

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"The contribution of superannuation assets in real terms will shift from just under 100 per cent of Gross Domestic Product (GDP) currently to 180 per cent of GDP in the next 20 years, and it is not sufficiently appreciated that net investment income is of a similar size each year to the total net superannuation contributions," Mason said.

However Deloitte stated that while the assets pool may be large, a number of people would still have insufficient superannuation funds due to the limited time they have had to save for retirement and the impact of the global financial crisis on their retirement savings.

Deloitte Actuaries & Consultants partner Wayne Walker said current superannuation policy — including changes to contribution caps, draw-downs and the SG — would not deliver the level of superannuation savings required by many people in retirement.

Walker said that deferring retirement by two to five years instead would have a significant impact. The asset pool would grow by a further $400 billion with a retirement age of 67, and another $1 trillion would be added with a retirement age of 70. However Walker noted this was dependent on both the ability of many people to work longer and to find or remain in employment after age 65.

Mason said staying in work longer was something that needed to be considered, as some people did not have enough savings in superannuation alone to fund their retirement and were likely to outlive their retirement savings.

"Increasing longevity means that half our retirees are expected to live past age 86, with a 100 per cent increase in the number of Australians over the age of 75 in just 20 years," Mason said.

"Today's average 65-year-old Australian will not have enough superannuation to fully fund their life expectancy."